(SINGAPORE) Temasek Holdings staff will be paid 'negative bonuses' for the second year in a row after its investment return fell below its risk-adjusted cost of capital, chief executive Ho Ching said yesterday.

The firm's wealth added - what Temasek calls its return in excess of its risk-adjusted cost of capital - was negative for the year to end-March, she said, though she did not disclose the size of the shortfall.

'In the previous financial year, which ended on March 31, 2008, Temasek's wealth added was minus $6.3 billion - the first time in the five years since it started publishing its annual Temasek Review that its investment return fell below the cost-of-capital hurdle. That was despite Temasek generating a positive return of 7 per cent for its shareholder, the Ministry of Finance.

'And so, from CEO to office attendants, all our staff were allocated negative bonuses last year, and will be allocated more negative bonuses this year,' Ms Ho said.

A Temasek spokesman said that an undisclosed portion of the wealth added each year forms a bonus pool that is then allocated to 'bonus banks' maintained for individual staff. When bonuses are positive, staff can withdraw just part of the bonus in cash; the rest is retained in various co-investment schemes that can be cashed in only after three years or more.

When the wealth added is negative, a 'negative bonus' is then charged against the balance in the staff's bonus bank, potentially wiping out the medium- and long-term incentives paid in previous years.

'While we are certainly not happy with the negative wealth added in March last year, as well as March this year, this has enabled us to test our compensation framework through at least one very difficult market cycle,' Ms Ho said.

One of Temasek's key principles, she said, 'is for our employees to share in the institution's performance, both for positive and negative results'.

'This is in essence having an owner's approach to our business and operations.'

Senior managers have the bulk of their incentives deferred for 3-12 years, she said. Some of these deferred pay components are subject to market risks, and vary with the returns that Temasek earns for the Finance Ministry.

The remaining components are subject to a 'no-floor claw-back', she added, meaning that they may be 'wiped out if and when we deliver well below our cost of capital target'.

'This clawback feature is tied to the principle of rewarding only for sustainable performance,' she said.

She also hinted at possible changes to Temasek's current pay structure. 'Some say it's too long,' she said, of the 3-12-year period for deferred pay. 'But we'll see.'